United States Government Accountability Office

GAO Testimony

Before the Subcommittee on Readiness 

and Management Support, Committee on 

Armed Services, U.S. Senate 

DEFENSE MANAGEMENT For Release on Delivery 

Expected at 2:00 p.m. EST

Wednesday, November 9, 2005

Foundational Steps Being 

Taken to Manage DOD 

Business Systems 

Modernization, but Much 

Remains to be 

Accomplished to Effect 

True Business 

Transformation 

Statement of Randolph C. Hite 

Director Information Technology Architecture and 

Systems 

GAO-06-234T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

November 9, 2005

DEFENSE MANAGEMENT 

Foundational Steps Being Taken to 

Manage DOD Business Systems 

Modernization, but Much Remains to be 

Accomplished to Effect True Business 

Transformation 

Highlights of GAO-06-234T, a testimony 

before the Subcommittee on Readiness 

and Management Support, Committee on 

Armed Services, U.S. Senate 

For years, the Department of 

Defense (DOD) has embarked on a

series of efforts to transform its 

business operations, including 

modernizing underlying

information technology (business)

systems. GAO has reported on

inefficiencies and inadequate

accountability across DOD’s major 

business areas, resulting in billions 

of dollars of wasted resources 

annually. Of the 25 areas on GAO’s 

2005 list of high-risk federal 

programs and operations that are 

vulnerable to fraud, waste, abuse 

or mismanagement and in need of 

reform, 8 are DOD programs or 

operations, and 6 are governmentwide high risk areas for which DOD 

shares responsibility. 

The Ronald W. Reagan National 

Defense Authorization Act for 

Fiscal Year 2005 required DOD to 

satisfy several conditions relative

to its approach to managing its

business system modernization 

program, including developing an

enterprise transition plan, which

GAO is currently assessing. DOD 

also recently established a 

Business Transformation Agency 

intended to advance defense-wide 

business transformation. 

 

GAO was asked to testify on DOD’s 

business transformation, including

its preliminary observations on 1)

DOD’s efforts to satisfy fiscal year 

2005 defense authorization act 

requrements; 2) the Business 

Transformation Agency; and 3) 

DOD’s efforts to provide the 

leadership, structures, and plans 

needed to effect transformation. 

GAO’s preliminary observation based on its ongoing work is that DOD has 

made progress in establishing needed business system modernization 

management capabilities and appears to have complied with some of the 

act’s provisions, but more needs to be done. To comply with the act’s 

requirement that it develop a business enterprise architecture and transition 

plan meeting certain requirements, DOD approved Version 3.0 of its 

architecture and associated transition plan on September 28, 2005. GAO’s 

work so far suggests that this version of the architecture may satisfy the 

conditions of the act to some extent, but not entirely. For example, while 

Version 3.0 includes a target architecture, as required, it does not include a 

current architecture. Without this element, DOD could not analyze the gaps 

between the two architectures—critical input to a comprehensive transition 

plan. In addition, the transition plan appears to include certain required 

information (such as milestones for major projects), but it appears to be 

inconsistent with the architecture in various ways, such as including some

systems that are not in the target architecture and vice versa, and it does not 

include system performance metrics aligned with the plan’s strategic goals

and objectives. Finally, GAO’s preliminary work suggests that DOD may 

have satisfied some of the act’s requirements regarding the review and 

approval of investments in business systems, but it either has not satisfied or 

is still in the process of satisfying others. For example, it has delegated 

authority and largely established review structures and processes as

required. However, some of these structures do not yet appear to be in place,

and some reviews and approvals to date may not have followed the criteria

in the act. GAO expects to report on these issues shortly. 

DOD’s Business Transformation Agency offers potential benefits relative to 

the department’s business systems modernization efforts if the agency can 

be properly organized, resource, and empowered to effectively execute its

roles and responsibilities and is held accountable for doing so. The agency 

faces several challenges, including standing up a functioning acquisition 

organization within a short period of time. As DOD moves forward with 

implementing this agency, it will be important for it to address these issues. 

DOD has taken several actions intended to advance transformation, such as 

establishing management structures like the Business Transformation 

Agency, and developing the enterprise transition plan. While these steps are

positive, their primary focus appears to be on business system 

modernization. Business transformation is much broader and encompasses 

planning, management, structures, and processes related to all key business 

areas. As DOD continues to evolve its transformation efforts, critical to 

successful reform are sustained leadership, structures, and a clear strategic 

and integrated plan that encompass all major business areas. GAO believes 

a chief management official, responsible for business transformation, could 

provide the strong and sustained executive leadership needed in this area. 

www.gao.gov/cgi-bin/getrpt?GAO-06-234T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Randy Hite at 

(202) 512-3429 or hiter@gao.gov.
Mr. Chairman and Members of the Subcommittee: 

I appreciate the opportunity to be here today to discuss business 

systems modernization and overall business transformation at the 

Department of Defense (DOD)—two areas that are on our high-risk 

list of federal programs and activities that are at risk of waste, fraud, 

abuse, or mismanagement and in need of broad-based 

transformation.1

 At the onset, I would like to pass on Comptroller 

General Walker’s gratitude to this Subcommittee for your continued 

oversight of key government operations and management issues, 

including DOD’s business transformation activities. The active role 

of this Subcommittee is essential to ultimately assuring DOD’s 

continued progress in business transformation, while enhancing 

public confidence in DOD’s stewardship of the hundreds of billions 

of taxpayer funds it receives each year. 

Given its size and mission, DOD is one of the largest and most 

complex organizations to effectively manage in the world. While 

DOD maintains military forces with significant capabilities, it 

continues to confront pervasive, decades-old management problems 

related to its business operations, including outdated and ineffective 

systems and processes that support these forces. At a time when 

DOD is challenged to maintain a high level of military operations 

while competing for resources in an increasingly fiscally 

constrained environment, DOD’s business area weaknesses 

continue to result in reduced efficiencies and effectiveness that 

waste billions of dollars every year. Of the 25 areas on our 2005 

high-risk list, 8 are DOD programs or operations and 6 are 

governmentwide high-risk areas for which DOD shares some 

responsibility. These areas touch on all of DOD’s major business 

operations. In some cases, such as DOD’s financial management, 

weapons acquisition, and business systems modernization areas, we 

have been highlighting high-risk challenges for a decade or more. 

This year we added DOD’s overall approach to business 

transformation to our list of high-risk areas because (1) DOD’s 

business improvement initiatives and control over resources are 

 1

 GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005). 

Page 1 
fragmented; (2) DOD lacks a clear and integrated business 

transformation plan and investment strategy; and (3) DOD has not

designated an appropriate level senior management official—such 

as a chief management official (CMO)--with the authority to be 

responsible and accountable for overall business transformation 

reform and related resources. In particular, GAO has suggested the 

need for a chief management official2

 to provide the sustained toplevel leadership and accountability needed by DOD to better 

leverage plans, processes, systems, people and tools to achieve the 

needed transformation. 

Many past administrations have tried to address the deficiencies we 

have identified at DOD, with the latest attempt being launched in 

2001 when Secretary Rumsfeld outlined a vision for transforming 

the department that called for dramatic changes in management, 

technology, and business practices. At that time, the Secretary 

established the Business Management Modernization Program, or 

BMMP, to effect this change. Since then, we have reported a litany 

of program weaknesses and made scores of recommendations. Our 

latest reports on this program, which were issued about the same 

time as this Subcommittee’s last oversight hearing in April 2005 on 

DOD business transformation and financial accountability, were 

quite critical of the program, observing that after investing about 4 

years and $318 million on the BMMP, the department had made very 

little progress. 

To its credit, the Congress, and this Subcommittee in particular, has 

become increasingly focused on improving DOD’s business 

operations by holding several oversight hearings, such as this one, 

and enacting legislation. The recent requirements in the Ronald W. 

Reagan National Defense Authorization Act for Fiscal Year 2005 

aimed at strengthening DOD’s management of its business systems 

modernization efforts—developing a business enterprise 

architecture and transition plan, and establishing system investment 

management structures and processes—are particularly important 

ingredients to addressing DOD’s business systems modernization 

 2

 S.780, 109th Cong., 1st Sess. introduced in the U.S. Senate on April 15, 2005, would create a 

statutory Chief Management Officer. 

Page 2 
high-risk area. The act requires GAO to review and report on this 

transition plan within 60 days of its approval by the Secretary of 

Defense. 

Senior administration leaders and advisors—including the Secretary 

of Defense, the Acting Deputy Secretary of Defense, the Deputy 

Director of the Office of Management and Budget (OMB), various 

senior level officials, and members of the Defense Business Board—

have demonstrated a commitment to addressing DOD’s business 

management weaknesses. OMB and DOD are working together to 

develop a plan to improve supply chain management that could 

place the department on the path toward removal of this area from

our high-risk list. For example, OMB and DOD are also consulting 

GAO as they develop action plans for other high-risk areas as well as 

a business architecture and related enterprise transition plan. 

Further, DOD has taken actions intended to comply with the Act by 

establishing system investment review structures and processes, 

and it has also established a Business Transformation Agency to 

bring increased management focus to its business systems 

modernization area. 

Today, I would like to provide our preliminary perspectives on 

(1) DOD’s efforts to satisfy the business systems modernization 

requirements in the fiscal year 2005 National Defense Authorization 

Act; (2) the Business Transformation Agency’s potential to help 

strengthen business systems modernization; and (3) whether DOD 

efforts to establish management structures and its business 

enterprise transition plan provide the leadership and planning 

needed to effect business transformation. 

My statement is based upon our ongoing assessment of DOD’s 

efforts to comply with the 2005 defense authorization act, as 

required under the act. As such, the statement provides our 

preliminary views on DOD’s efforts. It is also based on our analysis 

of DOD’s enterprise transition plan relative to our published work 

on successful organizational transformation efforts and each of 

DOD’s high risk areas, as well as analysis of DOD’s directives 

establishing the Defense Business Transformation Agency, our 

previous reports and testimonies, and discussions with DOD senior

Page 3 
executives. Our work was performed in accordance with U.S. 

generally accepted government auditing standards. 

Summary 

In summary, let me reiterate what Comptroller General Walker has 

stated on many occasions-transforming the department’s business 

operations is an absolute necessity given the long-term fiscal 

outlook, and accomplishing this transformation will require 

sustained and persistent leadership for at least 5 to 7 years. The 

department, under the leadership of Acting Deputy Secretary 

England, recently began taking some positive steps in this direction,

particularly with respect to the business systems modernization 

management changes called for in the fiscal year 2005 National 

Defense Authorization Act, as well as with certain other DOD highrisk areas. As of today, our preliminary work suggests that progress 

has been made in complying with the provisions in the act, but more 

needs to be done. DOD agrees, and it intends to do more. With 

respect to DOD’s compliance with the authorization act’s 

requirements, we will be issuing a full report to this and other 

defense congressional committees by November 25, 2005. 

In addition, DOD’s Business Transformation Agency offers potential 

benefits relative to the department’s business systems 

modernization efforts if the agency can be properly organized, 

resource, and empowered to effectively execute its roles and 

responsibilities and is held accountable for doing so. The agency 

faces several challenges, including standing up a functioning 

acquisition organization within a short period of time. As DOD 

moves forward with implementing this agency, it will be important 

for it to address these issues. 

Furthermore, DOD has taken several actions intended to advance 

transformation, such as establishing management structures like the 

Business Transformation Agency, and developing the enterprise 

transition plan. While these steps are positive, their primary focus 

appears to be on business system modernization. Business 

transformation is much broader and encompasses planning, 

management, structures, and processes related to all key business 

areas. As DOD continues to evolve its transformation efforts, 

Page 4 
critical to successful reform are sustained leadership, structures, 

and a clear strategic and integrated plan that encompass all major 

business areas. We, therefore, continue to believe that a CMO 

position along with an integrated strategic plan for the overall 

business transformation effort, remain essential ingredients for 

better ensuring that overall business transformation is successfully 

implemented and sustained. 

Background 

DOD is one of the largest and most complex organizations in the 

world to manage effectively. While DOD maintains military forces 

with unparalleled capabilities, it continues to confront pervasive, 

decades-old management problems related to its business 

operations—which include outdated systems and processes—that 

support these forces. These management weaknesses cut across all 

of DOD’s major business areas, such as human capital management; 

the personnel security clearance program; support infrastructure 

management; financial management; weapon systems acquisition; 

contract management; supply chain management; and last, but not 

least, business systems modernization. All of these DOD areas are 

on our high-risk list. 

For years, DOD has attempted to modernize its business systems, 

and we have provided numerous recommendations to help guide its 

efforts, including a set of recommendations to help DOD develop 

and implement an enterprise architecture (or modernization 

blueprint) and establish effective management controls. To achieve 

successful transformation, we have also recommended the need for 

a CMO, and a strategic integrated action plan for the overall 

business transformation effort. 

Enterprise Architecture and Information Technology Investment Management Are 

Critical to Achieving Successful Systems Modernization 

Effective use of an enterprise architecture, or modernization 

blueprint, is a hallmark of successful public and private 

organizations. For more than a decade, we have promoted the use of 

architectures to guide and constrain systems modernization, 

Page 5 
recognizing them as a crucial means to a challenging goal: agency 

operational structures that are optimally defined in both the 

business and technological environments. The Congress has also 

recognized the importance of an architecture-centric approach to 

modernization: the E-Government Act of 2002,3

 for example, 

requires OMB to oversee the development of enterprise 

architectures within and across agencies. 

In brief, an enterprise architecture provides a clear and 

comprehensive picture of an entity, whether it is an organization 

(e.g., a federal department) or a functional or mission area that cuts 

across more than one organization (e.g., financial management). 

This picture consists of snapshots of both the enterprise’s current or 

“As Is” environment and its target or “To Be” environment. These 

snapshots consist of “views,” which are one or more architecture 

products (models, diagrams, matrices, text, etc.) that provide logical 

or technical representations of the enterprise. The architecture also 

includes a transition or sequencing plan, based on an analysis of the 

gaps between the “As Is” and “To Be” environments; this plan 

provides a temporal roadmap for moving between the two that 

incorporates such considerations as technology opportunities, 

marketplace trends, fiscal and budgetary constraints, institutional 

system development and acquisition capabilities, the dependencies 

and life expectancies of both new and “legacy” (existing) systems, 

and the projected value of competing investments. Our experience 

with federal agencies has shown that investing in information 

technology (IT) without defining these investments in the context of 

an architecture often results in systems that are duplicative, not well 

integrated, and unnecessarily costly to maintain and interface.4

 3

 The E-Government Act of 2002, Pub. L. No. 107-347, § 101(a), 116 Stat. 2899, 2903-05, (Dec. 

17, 2002), Sec 44 U.S.C. § 3602 (e), (f). 

4

 See, for example, GAO, Homeland Security: Efforts Under Way to Develop Enterprise 

Architecture, but Much Work Remains, GAO-04-777 (Washington, D.C.: Aug. 6, 2004); DOD 

Business Systems Modernization: Limited Progress in Development of Business 

Enterprise Architecture and Oversight of Information Technology Investments, GAO-04-

731R (Washington, D.C.: May 17, 2004); and Information Technology: Architecture Needed

to Guide NASA’s Financial Management Modernization, GAO-04-43 (Washington, D.C.: 

Nov. 21, 2003). 

Page 6 
A corporate approach to IT investment management is also 

characteristic of successful public and private organizations. 

Recognizing this, the Congress developed and enacted the ClingerCohen Act in 1996,5

 which requires OMB to establish processes to 

analyze, track, and evaluate the risks and results of major capital 

investments in information systems made by executive agencies.6

 In 

response to the Clinger-Cohen Act and other statutes, OMB 

developed policy for planning, budgeting, acquisition, and 

management of federal capital assets and issued guidance.7

 We have 

also issued guidance in this area,8

 in the form of a framework that 

lays out a coherent collection of key practices that, when 

implemented in a coordinated manner, can lead an agency through a 

robust set of analyses and decision points that support effective IT 

investment management. This framework defines institutional 

structures, such as investment review boards, and associated 

processes, such as common investment criteria. Further, our 

investment management framework recognizes the importance of 

an enterprise architecture as a critical frame of reference for 

organizations making IT investment decisions: specifically, it states 

that only investments that move the organization toward its target 

architecture, as defined by its sequencing plan, should be approved 

(unless a waiver is provided or a decision is made to modify the 

architecture). Moreover, it states that an organization’s policies and 

procedures should describe the relationship between its 

architecture and its investment decision-making authority. Our 

experience has shown that mature and effective management of IT 

investments can vastly improve government performance and 

 5

 The Clinger-Cohen Act of 1996, 40 U.S.C. sections 11101-11704. This act expanded the

responsibilities of OMB and the agencies that had been set under the Paperwork Reduction 

Act, which requires that agencies engage in capital planning and performance and resultsbased management. 44 U.S.C. § 3504(a)(1)(B)(vi) (OMB); 44 U.S.C. § 3506(h)(5) (agencies)

6

 We have made recommendations to improve OMB’s process for monitoring high-risk IT 

investments; see GAO, Information Technology: OMB Can Make More Effective Use of Its 

Investment Reviews, GAO-05-276 (Washington, D.C.: Apr. 15, 2005). 

7

 This policy is set forth and guidance is provided in OMB Circular No. A-11 (section 300)

and in OMB’s Capital Programming Guide, which directs agencies to develop, implement,

and use a capital programming process to build their capital asset portfolios.

8

 GAO, Information Technology Investment Management: A Framework for Assessing 

and Improving Process Maturity, GAO-04-394G (Washington, D.C.: March 2004). 

Page 7 
accountability, and can help to avoid wasteful IT spending and lost 

opportunities for improvements. 

Recent Reviews of DOD’s Business System Modernization Efforts Have Raised 

Concerns

Since 2001, we have regularly reported9 on DOD’s efforts to (among

other things) develop an architecture and to establish and 

implement effective investment management structures and 

processes. Our reports have continued to raise concerns about the 

department’s architecture program, the quality of the architecture 

and the transition plan, and the lack of an investment management 

structure and controls to implement the architecture. Our most 

recent reports, which were issued in the third and fourth quarters of 

fiscal year 2005,10 made the following points: 

● DOD had not established effective structures and processes for 

managing the development of its architecture. 

● DOD had not developed a well-defined architecture. The 

products that it had produced did not provide sufficient content 

and utility to effectively guide and constrain ongoing and planned 

system investments. 

● DOD had not developed a plan for transitioning from the “As Is” 

to the “To Be” architectures. 

 9

 GAO, Information Technology: Architecture Needed to Guide Modernization of DOD’s 

Financial Operations, GAO-01-525 (Washington, D.C.: May 17, 2001); DOD Business 

Systems Modernization: Improvements to Enterprise Architecture Development and 

Implementation Efforts Needed, GAO-03-458 (Washington, D.C.: Feb. 28, 2003); 

Information Technology: Observations on Department of Defense’s Draft Enterprise

Architecture, GAO-03-571R (Washington, D.C.: Mar. 28, 2003); Business Systems 

Modernization: Summary of GAO’s Assessment of the Department of Defense’s Initial

Business Enterprise Architecture, GAO-03-877R (Washington, D.C.: July 7, 2003); DOD 

Business Systems Modernization: Important Progress Made to Develop Business 

Enterprise Architecture, but Much Work Remains, GAO-03-1018 (Washington, D.C.: Sept. 

19, 2003); DOD Business Systems Modernization: Limited Progress in Development of 

Business Enterprise Architecture and Oversight of Information Technology Investments,

GAO-04-731R (Washington, D.C.: May 17, 2004). 

10 GAO, DOD Business Systems Modernization: Billions Being Invested without 

Adequate Oversight, GAO-05-381 (Washington, D.C.: Apr. 29, 2005); DOD Business 

Systems Modernization: Long-standing Weaknesses in Enterprise Architecture

Development Need to Be Addressed, GAO-05-702 (Washington, D.C.: July 22, 2005). 

Page 8 
● DOD did not have an effective departmentwide management 

structure for controlling its business investments. 

● DOD had not established common investment criteria for system 

reviews. 

● DOD had not included all reported systems in its fiscal year 2005 

IT budget request. 

● The Under Secretary of Defense (Comptroller) had not certified 

all systems investments with reported obligations exceeding 

$1 million, as required by the fiscal year 2003 National Defense 

Authorization Act.11 

Our recommendations to DOD provide a comprehensive roadmap 

for addressing these problems. DOD has largely agreed with the 

recommendations and as we recently reported, has defined a 

framework intended to do so. 

Successful Business Transformation Requires Sound Strategic Planning and Sustained 

Leadership

In testimony before this Subcommittee earlier this year, Comptroller 

General Walker emphasized that there are three key elements that 

DOD must incorporate into its business transformation efforts to 

successfully address its systemic business challenges. 12 First, these 

efforts must include an integrated strategic business transformation 

plan, including an enterprise architecture to guide and constrain 

implementation of such a plan. Second, control of system 

investments is crucial for successful business transformation. 

Finally, a CMO is essential for providing the sustained leadership 

needed to achieve a successful and lasting transformation effort. 

The CMO would not assume the day-to-day management 

responsibilities of other DOD officials nor represent an additional 

hierarchical layer of management but would lead DOD’s overall 

business transformation efforts. Additionally, a 7-year term would 

 11 Bob Stump National Defense Authorization Act for Fiscal Year 2003, Pub. L. No. 107-314, 

§ 1004, 116 Stat. 2458, 2629-2631 (Dec. 2, 2002). 

12 See GAO, Defense Management: Key Elements Needed to Successfully Transform DOD 

Business Operations, GAO-05-629T (Washington, D.C.: Apr. 28, 2005).

Page 9 
also enable the CMO to work with DOD leadership across 

administrations to sustain the overall business transformation 

effort. 

DOD’s Efforts to Comply with National Defense Authorization Act 

for Fiscal Year 2005 Indicate Progress and a Foundation Upon 

Which to Build 

As defined in Section 332 of the defense authorization act for fiscal 

year 2005,13 DOD is required to satisfy several conditions relative to 

its approach to managing its business systems modernization 

program. Generally speaking, DOD is required to do the following: 

1. By September 30, 2005, develop a business enterprise 

architecture that meets certain requirements. 

2. By September 30, 2005, develop a transition plan for 

implementing the architecture that meets certain requirements. 

3. Identify each defense business system proposed for funding in 

the budget submissions for fiscal year 2006 and subsequent 

years, and for each system, among other things, identify whether 

funding is for current services or business systems 

modernization. 

4. Take a number of actions regarding the review and approval of 

investments, including delegating responsibility for business 

system review and decision making to designated approval 

authorities,14 establishing investment review boards and 

 13 Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Pub. L. No. 

108-375, § 332, 118 Stat. 1811, 1851-1856 (Oct. 28, 2004) (codified in part at 10 U.S.C.

§ 2222). 

14 Approval authorities include the Under Secretary of Defense for Acquisition, Technology,

and Logistics; the Under Secretary of Defense (Comptroller); the Under Secretary of

Defense for Personnel and Readiness; and the Assistant Secretary of Defense for Networks 

and Information Integration/Chief Information Officer of the Department of Defense. These 

approval authorities are responsible for the review, approval, and oversight of business

systems and must establish investment review processes for systems under their

cognizance. 

Page 10 
supporting process that employ common steps and criteria, and 

obligating funds for Defense Business System Modernizations 

after October 1, 2005, only for systems that have been certified 

and approved. 

The act also requires us to assess DOD’s efforts to comply with the 

act within 60 days after approval of the business enterprise 

architecture and transition plan. On September 28, 2005, the Acting 

Deputy Secretary of Defense approved Version 3.0 of the business 

enterprise architecture and approved the associated enterprise 

transition plan. Accordingly, we are currently in the process of 

conducting our assessment, and we plan by November 25, 2005, to 

issue a report containing the results of our assessment to defense 

congressional committees, as specified in the act. As agreed, this 

statement contains only preliminary observations based on our 

ongoing work, meaning that these observations may change as we 

conclude our ongoing assessment. 

For purposes of this statement, we have grouped the act’s 

requirements, and our preliminary observations, into four 

categories: business enterprise architecture, enterprise transition 

plan, fiscal year 2006 budget submission, and investment review and 

approval. 

Business Enterprise Architecture Requirements 

The act requires that DOD develop, by September 30, 2005,15 a 

business enterprise architecture. According to the act, this 

architecture must satisfy three major requirements: 

1. Include an information infrastructure that, at a minimum, would 

enable DOD to 

● comply with all federal accounting, financial management, and 

reporting requirements; 

 15 Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Pub. L. No. 

108-375, § 332, 118 Stat. 1811, 1851-1856 (Oct. 28, 2004) (codified in part at 10 U.S.C. §

2222). 

Page 11 
● routinely produce timely, accurate, and reliable financial 

information for management purposes; 

● integrate budget, accounting, and program information and 

systems; and 

● provide for the systematic measurement of performance, 

including the ability to produce timely, relevant, and reliable cost 

information. 

2. Include policies, procedures, data standards, and system 

interface requirements that are to be applied uniformly 

throughout the department. 

3. Be consistent with OMB policies and procedures. 

According to DOD, this version is intended to provide a blueprint to 

help ensure near-term delivery of needed capabilities, resources, 

and materiel to the warfighter. To do so, this version focused on six 

Business Enterprise Priorities (see table 1), which DOD states are 

short-term objectives to achieve immediate results. According to the 

department, these priorities will evolve and expand in future 

versions of the architecture. 

Table 1: Business Enterprise Priorities 

Business Enterprise Priority Description 

Personnel Visibility Providing access to reliable, timely, and accurate personnel information for warfighter mission 

planning. 

Acquisition Visibility Providing transparency and access to acquisition information that is critical to supporting life-cycle 

management of the department’s processes for delivering weapon systems and automated

information systems. 

Common Supplier Engagement Aligning and integrating policies, processes, data, technology, and people to simplify and

standardize the methods that DOD uses to interact with commercial and government suppliers. 

Materiel Visibility Improving supply chain performance. 

Real Property Accountability Acquiring access to real-time information on DOD real property assets. 

Financial Visibility Providing immediate access to accurate and reliable financial information that will enhance efficient 

and effective decision making. 

Source: DOD. 

In addition to focusing version 3.0 on these priorities, according to 

DOD, the department also limited the extent to which the 

architecture was to address each priority, focusing on four 

questions: 

Page 12 
● Who are our people, what are their skills, and where are they 

located? 

● Who are our industry partners, and what is the state of our 

relationship with them? 

● What assets are we providing to support the warfighter, and where 

are these assets deployed? 

● How are we investing our funds to best enable the warfighting 

mission? 

To produce a version of the architecture within the above scope, 

DOD created 12 of the 23 recommended products included in the 

DOD Architecture Framework—the structural guide that the 

department has established for developing an architecture.16 These 

12 products included all 7 products that the framework designates 

as essential.17 For example, one essential product is the Operational 

Node Connectivity Description, which is a graphic showing 

“operational nodes” (organizations) and including a depiction of 

each node’s information exchange needs. 

Our preliminary work suggests that Version 3.0 of DOD’s business 

enterprise architecture may partially satisfy the major conditions 

specified in the act. For example, Version 3.0 could enable DOD’s 

compliance with many but not all federal accounting, financial 

management, and reporting requirements. To this end, the 

architecture includes the Standard Financial Information Structure 

(SFIS) and the Standard Accounting Classification Structure 

(SACS), which together could allow DOD to standardize financial 

data elements necessary to support budgeting, accounting, 

cost/performance management, and external reporting. Both SFIS 

and SACS are based upon mandated requirements defined by 

external regulatory entities, such as the Treasury, OMB, the Federal 

Accounting Standards Advisory Board, and the Joint Financial 

 16 The Department of Defense Architecture Framework recommends that the architecture

include 23 of the 26 possible architecture products to meet the department’s stated 

intention to use the architecture as the basis for departmentwide business and systems

modernization.

17 DOD, Department of Defense Architecture Framework, Version 1.0, Volume 1 (August 

2003) and Volume 2 (February 2004). 

Page 13 
Management Improvement Program.18 Moreover, SFIS has in tur

been used to develop and incorporate business rules in the 

architecture for such areas as managerial cost accounting, g

ledger, and federally owned property. Business rules are important

because they explicitly translate important business policies and 

procedures into specific and unambiguous rules that govern what

can and cannot be done. 

n

eneral

However, it is not apparent that the architecture provides for 

g

As another example, Version 3.0 may partially enable DOD to 

r

e,

nt,

ort

However, timely, accurate and reliable information depends, in part, 

 

compliance with all federal accounting, financial, and reportin

requirements. For example, it may not contain the information 

needed to achieve compliance with the Treasury’s United States

Standard General Ledger19 or a strategy for achieving this 

compliance.

produce timely, accurate, and reliable financial information fo

management purposes. Specifically, according to the architectur

financial information is to be produced through (1) SFIS, which can

support data accuracy, reliability, and integrity requirements for 

budgeting, financial accounting, cost and performance manageme

and external reporting across DOD, and (2) a “Manage Business 

Enterprise Reporting” system function, which is intended to supp

the reporting of financial management and program performance 

information, including agency financial statements. 

on using standard definitions of key terms, which the architecture 

does not appear to include in all cases. For example, in Version 3.0

of the architecture, terms such as “balance forwarded” and “receipt

18 JFMIP was a joint and cooperative undertaking of the Department of the Treasury, GAO,

the Office of Management and Budget (OMB), and the Office of Personnel Management 

(OPM), working in cooperation with each other and other federal agencies to improve 

financial management practices in the federal government. Leadership and program 

guidance were provided by the four Principals of JFMIP—the Secretary of the Treasury, 

the Comptroller General of the United States, and the Directors of OMB and OPM. 

Although JFMIP ceased to exist as a stand-alone organization as of December 1, 2004, the

JFMIP Principals will continue to meet at their discretion.

19 The United States Standard General Ledger provides a uniform Chart of Accounts and

technical guidance to be used in standardizing federal agency accounting. 

Page 14 
balances” were not defined in the integrated dictionary although 

these terms were used in process descriptions. In the absence of 

standardized definitions, components (military services, defense 

agencies, and field activities) may use terms and definitions that a

locally meaningful but which cannot be reliably and accurately 

aggregated to permit DOD-wide visibility, which is critical to 

achieving DOD’s stated business enterprise priorities. This ina

to aggregate has historically required DOD to create information for

management purposes using inefficient methods, such as data calls 

and data conversions, that have limited the information’s reliability 

and timeliness. 

re

bility

Our preliminary work also suggests that Version 3.0 may partially 

s

ance.

, is a

,

s

ess

Version 3.0 may also contain other limitations. For example, it may 

ms

ple,

satisfy the act’s requirement that it be consistent with OMB policie

and procedures. For example, Version 3.0 appears to include 

information flows and relationships, as required by OMB guid

OMB guidance also requires the architecture to describe the “As Is” 

and “To Be” environments and a transition plan; however, Version 

3.0 does not include an “As Is” environment. Without this element, 

DOD would not be able to develop a gap analysis identifying 

performance shortfalls, which as discussed in the next section

critical input to a comprehensive transition plan. In addition, OMB 

guidance requires that the architecture include, among other things

a description of the technology infrastructure; such a description is 

not apparent in Version 3.0, in that it does not identify such needed 

technology components as wide-area networks, databases, and 

telecommunications. Similarly, Version 3.0 does not appear to 

include a security architecture, although OMB guidance require

agencies to incorporate security into the architecture of their 

information and systems to ensure the security of agency busin

operations. 

not yet be fully integrated with the enterprise transition plan. In 

particular, we are currently attempting to determine why 21 syste

identified in the architecture are not included in the “Master List of 

Systems and Initiatives” in the transition plan (the master list serves

as the baseline of currently planned—”To Be”—systems that begin 

to address the transformational objectives of the program). In 

addition, DOD has itself disclosed certain limitations. For exam

Page 15 
it reported that the architecture is not adequately linked to the 

component20 architectures and transition plans. This omission is

particularly important given the department’s newly adopted 

federated approach to developing and implementing the 

architecture. In addition, according to DOD, the architect

be improved to better designate enterprise data sources, business 

services, and IT infrastructure services, such as enterprise data 

storage. This is important because each of these greatly affects t

scope and design of specific systems. 

ure must

he

According to DOD officials, the department is taking an incremental 

ld be

ng

ed

We support DOD’s taking an incremental approach to developing 

ts that

train

Enterprise Transition Plan 

approach to developing the architecture and meeting the act’s 

requirements. Accordingly, they said that Version 3.0 was 

appropriately scoped to provide for that content which cou

produced in the time available to both lay the foundation for fully

meeting the act’s requirements and provide a blueprint for deliveri

near-term capabilities and systems to meet near-term business 

enterprise priorities. Based on these considerations, they assert

that Version 3.0 fully satisfies the intent of the act. 

the business enterprise architecture, as we recognize that adopting

such an approach is both a best practice and a prior GAO 

recommendation. In addition, our preliminary work sugges

Version 3.0 may provide a foundation upon which to build a more 

complete architecture. Nevertheless, the real question that remains

is whether this version contains sufficient scope, detail, integration,

and consistency to serve as a sufficient frame of reference for 

defining a common vision and transition plan to guide and cons

system investments. 

The act requires that DOD develop, by September 30, 2005, a 

ree

conditions: 

 

transition plan for implementing its business enterprise 

architecture. According to the act, this plan must meet th

20 DOD components include the military services, defense agencies, and field activities. 

Page 16 
1. Include an acquisition strategy for new systems that are 

expected to be needed to complete the defense business 

enterprise architecture. 

2. t be 

s systems environment, and a strategy 

for making modifications to those systems that will be included. 

3.

app

suggests that it may partially satisfy each condition. For example, 

r

the

s

is

ations

laced by ongoing

programs (for example, it identifies the Defense Cash Accountability 

be

145

Include listings of the legacy systems that will and will no

part of the target busines

Include specific time-phased milestones, performance metrics, 

and a statement of the financial and nonfinancial resource needs.

On September 28, 2005, the Acting Deputy Secretary of Defense 

roved the transition plan. Our preliminary work on this plan

the plan appears to include elements of an acquisition strategy fo

new systems and describe a high-level approach for modernizing

department’s business operations and systems. Further, it includes

detailed information on about 60 business systems (ongoing 

programs) that are to be part of the “To Be” architectural 

environment, as well as an acquisition strategy for each system. 

However, the plan does not appear to be based on a top-down

capability gap analysis between the “As Is” and “To Be” 

architectures that describes capability and performance shortfall

and clearly identifies which system investments (such as the 60

identified programs) are to address these shortfalls. This

important because a transition plan is to be an acquisition strategy

that recognizes timing and technological dependencies among 

planned systems investments, as well as such other consider

as market trends and return on investment. 

Similarly, our preliminary work suggests that the plan identifies 

some of the legacy systems that are to be rep

System as a target system and lists several legacy systems that it

would replace), and it provides a list of legacy systems that will

modified to provide capabilities associated with the target 

architecture environment. However, the plan’s listings of legacy 

systems that will and will not be part of the target architecture do 

not appear to be complete. For example, the plan identified

legacy systems that would be migrating to one target system (the

Page 17 
Expeditionary Combat Support System), but other DOD 

documentation21 shows that this target system includes over 659 

legacy systems, suggesting that 514 systems may not be accounted

for. 

Finally, the plan appears to include some of the required 

information on milestones, performance metrics, and resource 

needs. The plan includes key milestone dates for the 60 

ystem),

ystem), and

,

ed

t,

ng relevant context

and be inconsistent with the architecture in various ways. For 

mple, the

es a

 

 

systems/programs identified (such as the Defense Travel S

but it does not show specific dates for terminating or migrating

many legacy systems (such as the Cash Reconciliation S

it does not include milestone dates for some ongoing programs 

(such as the Navy Tactical Command Support System). Similarly

although the plan includes performance metrics for some systems,22

it does not include for each system measures and metrics, focus

on benefits or mission outcomes that can be linked to the plan’s 

strategic goals. In addition, according to program officials, the 

resource needs in the transition plan for some programs are not 

current, as these needs are reflective of the fiscal year 2006 budge

which was developed before a recent reevaluation of how these

programs will fit into the “To Be” environment. 

Our preliminary work also suggests that in addition to the 

limitations just described, the plan may be missi

example, it identifies 60 systems as target systems (for exa

Defense Cash Accountability System), but the “To Be” architecture 

appears to include only 23 of these. In addition, the plan includ

list of 66 systems that are characterized as nonpriority enterprise or 

component programs that will be part of the target architecture, but

the target architecture does not appear to identify all these systems.

According to DOD officials, the transition plan is evolving, and any 

limitations will be addressed in future iterations of the plan. They 

21 DOD, Expeditionary Combat Support System Sources Sought Synopsis (May 10, 2004). 

22 For example, for DOD’s military personnel and pay system, the Defense Integrated 

Military Human Resources System (DIMHRS), the plan cites a goal of reducing manual 

workarounds for military pay by 9 percent. 

Page 18 
also stated that the department has taken an incremental approach 

to developing a transition plan, and that the plan, as constrained by

the scope of Version 3.0 of the architecture, satisfies the intent of 

the act’s requirements. 

As with the architecture, we support an incremental development

approach. Moreover, this plan represents DOD’s first ever enterprise 

e

porting

Fiscal Year 2006 IT Budget Submission 

transition plan, and thus constitutes progress. However, questions

remain as to whether it is of sufficient scope and content to 

effectively and efficiently manage the disposition of the 

department’s existing inventory of systems or to sequence th

introduction of modernized business operations and sup

systems. 

The fiscal ye

that the depa

ar 2005 defense authorization act specifies information

rtment is to incorporate in its IT budget request for

is being

requested. 

2. rmation on all funds, by appropriation, for each 

business system, including funds by appropriation specifically 

s

3. h business

system. 

On the basis of our preliminary work, it appears that DOD’s fiscal 

year 2006 IT budget submission may partially satisfy these 

ested,

fiscal year 2006 and each fiscal year thereafter. Generally, the act 

states that each budget request for business systems must: 

1. Identify each defense business system for which funding

Provide info

for current services (Operation and Maintenance) and system

modernization (Procurement; Research, Development, Test and

Evaluation; and Defense Working Capital Fund). 

Identify the designated approval authority for eac

conditions. For example, although the fiscal year 2006 budget may

not identify each business system for which funding is requ

DOD is taking steps to ensure that subsequent fiscal year budget 

requests are more comprehensive. This situation arose because 

DOD’s fiscal year 2006 budget submission was submitted in 

February 2005, when the department did not yet have a single 

Page 19 
inventory of all of its business systems. As a result, DOD offi

could not guarantee that all business systems were included in

submission. Currently, the department is updating its single 

database for its inventory of business systems, as we had 

recommended,

cials

the

ember

007 IT

ncertainty regarding the

completeness of DOD’s IT budget submission. One source of 

 For 

tems in

l

business

ork also indicates that DOD may not have ensured

that budget requests for all business systems identify the type of 

ar

the

 

23 which is scheduled to be completed by Sept

30, 2006. Finally, DOD officials stated that the fiscal year 2

budget submission will be derived from a separate DOD 

authoritative IT budget database. 

There may be additional areas of u

uncertainty is inconsistencies in the way that DOD classifies

systems: as business systems or as national security systems.24

example, as we previously reported,25 DOD reclassified 56 sys

its fiscal year 2005 budget request from business systems to nationa

security systems, resulting in a decrease of approximately $6 billion 

in the fiscal year 2005 budget request for business systems and 

related infrastructure. Similarly, in the fiscal year 2006 submission, 

13 systems previously classified as business systems were 

reclassified as national security systems, and 10 systems previously

classified as national security systems were reclassified as

systems. We understand that DOD is currently reviewing its 

reclassifications. 

Our preliminary w

funding—by appropriation—being requested and whether the 

funding was for current services or modernization. In the fiscal ye

2006 budget submission, systems identified are categorized by

type of funding (appropriation) being requested and whether the 

23 GAO, DOD Business Systems Modernization: Billions Continue to Be Invested with

Inadequate Management Oversight and Accountability, GAO-04-615 (Washington, D.C.: 

May 27, 2004). 

24 National security systems are intelligence systems, cryptologic activities related to 

national security, military command and control systems, and equipment that is an integral 

part of a weapon or weapons system or is critical to the direct fulfillment of military or 

intelligence missions. 

25 GAO-05-381. 

Page 20 
funding is for current services or modernization; however, not all 

systems may be identifiable. In particular, it is not clear what is 

covered by one funding type or category referred to as “All Other.”

For fiscal year 2006, this category totaled about $1.2 billion and 

included, for example, about $22.6 million specifically for financial 

management. According to DOD officials,

r

y work indicates that DOD’s fiscal year 2006 

IT budget submission identifies the designated approval authority 

tary

disclosure is an important enabler of informed budgetary decision 

ct

o

Investment Review and Appr

26 this category in the IT

budget includes system projects that do not have to be identified by

name because they fall below the $2 million reporting threshold fo

budgetary purposes. 

Finally, our preliminar

for most systems, but not all. In particular, the approval authorities

for 57 systems in the submission were not apparent. For example, 

the Navy’s C2 On-the-Move Network Digital Over-the-Horizon Relay

system and the Defense Commissary Agency’s Enterprise Business

System have a designated approval authority of “Other.” 

Full compliance with the act’s conditions relative to budge

making and oversight. Without such disclosure, whether incorre

system classification, or mere oversights, the department’s efforts t

improve its control and accountability over its business systems 

investments are hindered, and the department and the Congress are 

constrained in their ability to effectively monitor and oversee the

billions of dollars spent annually to maintain, operate, and 

modernize DOD’s business systems. 

oval Requirements

The fiscal year 2005 de

the department is to ta

fense authorization act specifies actions that

ke regarding the review and approval of 

 

investments in business systems. Generally, the act sets up three 

requirements for the department:

26 GAO-04-615. 

Page 21 
● Delegate the authority and accountability for defense business 

systems to designated approval authorities within the Office of 

the Secretary of Defense. 

● By March 15, 2005, require each approval authority to establish 

an investment review process to review the planning, design, 

acquisition, development, deployment, operation, maintenance, 

modernization, and project cost benefits and risks of all defense 

business systems for which the approval authority is responsible. 

● Effective October 1, 2005, obligate funds for a defense business 

system modernization project with total cost exceeding 

$1 million after the approval authority designated for that system 

certifies to the Defense Business Systems Management 

Committee (DBMSC) that the system project meets specific 

conditions that are called for in the act, and the certification by 

the approval authority is approved by the DBSMC. 

On the basis of our preliminary work, it appears that DOD has 

satisfied some aspects of these conditions, and is potentially in the 

process of satisfying other aspects. First, on March 19, 2005, the 

Acting Deputy Secretary of Defense issued a memorandum that 

delegated the authority for the review, approval, and oversight of 

planning, design, acquisition, deployment, operation, maintenance, 

and modernization of the department’s business systems. 

Designation of these approval authorities is consistent with the act. 

Further, our research and evaluations, as reflected in the guidance 

that we have issued, shows that clear assignment of senior 

executive investment management responsibilities and 

accountabilities are key aspects of having an effective institutional 

approach to IT investment management. 

Second, DOD has established investment review structures and 

processes, including a hierarchy of investment review boards with 

representation from across the department, as well as a standard set 

of investment review and decision-making criteria for these boards 

to use to ensure compliance and consistency with the business 

enterprise architecture. Further, the DBSMC was chartered in 

February 2005 as the highest ranking system modernization 

Page 22 
governance body, as required by the act.27 Further, DOD has 

designated the chair and membership of the boards consistent with 

the act, and all but one of designated approval authorities have 

established investment review boards for their areas of 

responsibility, which the act requires each to do. The one approval 

authority that does not appear to have established a review process 

is the Assistant Secretary of Defense (Networks and Information 

Integration)/Chief Information Officer. 

To support its investment review structures, DOD has also 

established investment review processes that include, among other 

things, the use of business enterprise architecture compliance 

procedures, common decision criteria, threshold criteria to ensure 

appropriate levels of review and accountability. Notwithstanding 

these investment review structures and processes, it remains 

uncertain to what extent DOD components have established similar 

investment review bodies and will adopt common investment 

review and decision-making processes. DOD components are 

expected to establish their own structures and processes. Under the 

department’s concept of “tiered accountability,” significant 

responsibility and accountability for business system investments is 

to reside with the military services and defense agencies. The extent 

to which the components establish and consistently implement 

common investment management structures and processes is 

important, because doing so is a best practice. Without such 

structures and processes, investment decisions could potentially 

perpetuate the existence of overly complex, error-prone, 

nonintegrated system environments and limit introduction of 

corporate solutions to long-standing business problems. 

Finally, our preliminary work indicates that the department is in the 

process of ensuring that defense business system modernizations28

costing greater than $1 million are certified and approved in 

 27 See 10 U.S.C. § 186. 

28 The term ‘defense business system modernization’ is defined in 10 U.S.C. § 2222(j) (3) as

“(A) the acquisition or development of a new defense business system; or (B) any

significant modification or enhancement of an existing defense business system (other than

necessary to maintain current services).“ 

Page 23 
accordance with the act. Specifically, the department has identified 

210 systems with costs greater than $1 million, thus requiring 

certification and approval. Of these 210, DOD reports that 166 were 

certified and approved in accordance with the act before September 

30, 2005. This means that 44 were not, and according to the act, the 

department cannot make further obligations for any of these other 

than with funding left over from previous fiscal years, until they are 

certified and approved. 

One potential issue with regard to the department’s system 

certification and approval efforts to date is whether it has identified 

all business system modernizations with costs greater than $1 

million. Doing this requires, among other things, proper 

classification of systems as national security systems or as business 

systems. If a business system is improperly classified, it may not be

reviewed, certified, and approved in accordance with the act. As 

stated earlier, questions persist regarding whether the department 

has properly classified all business systems as such. 

Another potential issue is whether DOD has followed the act’s 

criteria for DBSMC review and approval in all of the aforementioned 

166 systems. Specifically, it appears that the DBSMC approved the 

certification of at least six business systems in August 2005 that had 

been previously reviewed in accordance with earlier criteria;29

however, the current criteria under the act do not provide for the 

DBSMC to approve a certification based upon such previous 

certification. According to DOD officials, these six systems will go 

through the current review process no later than February 2006. In 

addition to these six, DOD officials told us that several other 

systems investments, which were certified and approved on the 

grounds that they were mission essential,30 will also be resubmitted 

for DBSMC approval. 

 29 The six systems were reviewed under the criteria set forth in the fiscal year 2003 defense 

authorization act. 

30 See 10 U.S.C. § 2222 (a)(1)(C). 

Page 24 
DOD’s Business Transformation Agency Could Help Strengthen 

Systems Modernization Management and Oversight if it is 

Effectively Implemented 

On October 7, 2005, DOD established the Business Transformation 

Agency (BTA) to advance defense-wide business transformation 

efforts in general but particularly with regard to business systems 

modernization. BTA reports directly to the vice chair of the 

DBMSC.31 Among other things, BTA includes an acquisition 

executive who is to be responsible for 28 DOD-wide business 

projects, programs, systems, and initiatives. In addition, the BTA is 

to be responsible for integrating and supporting the work of the 

Office of the Secretary of Defense (OSD) principal staff assistants, 

who include the approval authorities that chair the business system 

investment review boards. 

In our view, BTA offers potential benefits relative to the

department’s business systems modernization efforts, if the agency 

can be properly organized, resourced, and empowered to effectively 

execute its roles and responsibilities, and if it is held accountable 

for doing so. In this regard, the agency faces a number of challenges 

as described below. 

According to DOD, this agency is expected to have a functioning 

acquisition organization by November 21, 2005. While such a 

timeline is daunting in and of itself, it is particularly challenging 

given that DOD is estimating up to 12 months to establish a 

permanent director. Moreover, there are numerous key acquisition 

functions that would need to established and made operational to 

effectively assume 28 DOD-wide projects, programs, systems, and 

initiatives, and our experience across the government shows that 

these functions can take considerable time to establish. 

Among other things, the agency is to be responsible for ensuring 

consistency and continuity across the department’s core business 

 31 The vice chair of the DBSMC is the Under Secretary of Defense for Acquisition, 

Technology and Logistics.

Page 25 
missions with respect to, for example, business process reengineering and related business system matters. While the agency 

should be able to accomplish this relative to the DOD-wide efforts 

that it can control, it does not appear to have the requisite authority 

to carry out this responsibility relative to DOD component system 

investments, which it does not have investment control over. At 

best, the agency will be able to support the DBMSC in its efforts to 

ensure such consistency and continuity. 

As currently structured, the agency does not include support to an 

OSD principal staff assistant and approval authority—the Assistant 

Secretary of Defense for Networks Integration and Infrastructure, 

who is responsible for DOD information technology infrastructure, 

such as wide-area networks, local-area networks, 

telecommunications, and security services. In addition, the agency’s

relationship to the Defense Information Systems Agency, which is 

also responsible for certain DOD-wide system capabilities and 

services, is not specified. As the department moves forward with 

implementing this new agency, it will important for it to address 

these issues. 

Effective DOD Business Transformation Will Require Broader Focus 

than Recently Launched Business Systems Modernization 

Management Structures and Activities 

For DOD to successfully transform its overall business operations, it 

will need senior level management accountability, a comprehensive 

and integrated business transformation plan that covers all of its key 

business functions; people with needed skills, knowledge, 

experience, responsibility, and authority to implement the plan; an 

effective process and related tools; and results-oriented 

performance measures that link institutional, unit, and individual 

performance goals and expectations to promote accountability for 

results. Over the last 3 years, GAO has made several 

recommendations that if implemented successfully could help DOD 

move forward in establishing the means to successfully address the 

challenges it faces in transforming its business operations. For 

example, as the Comptroller General testified before this 

Page 26 
subcommittee earlier this year, DOD needs a full-time CMO position, 

created through legislation, with responsibility and authority for 

DOD’s overall business transformation efforts.32 The CMO must be a 

person with significant authority and experience who would report 

directly to the Secretary of Defense. Given the nature and 

complexity of the overall business transformation effort, and the 

need for sustained attention over a significant period of time, this 

position should be a term appointment and the person should be 

subject to a performance contract. 

The Secretary of Defense, Acting Deputy Secretary of Defense, and 

other senior leaders have clearly shown commitment to business 

transformation and addressing deficiencies in the Department’s 

business operations. As I discussed earlier, DOD has taken several 

actions, including setting up the DBSMC, publishing a business 

enterprise transition plan and most recently, establishing the 

Business Transformation Agency. Moreover, DOD is examining 

various aspects of its business operations as part of the ongoing 

Quadrennial Defense Review. While these management structures 

and plan are positive steps, their primary focus, at this point, 

appears to be on business systems modernization. Clearly, 

maintaining effective and modern business systems is a key enabler 

to transformation. However, business transformation is much 

broader and encompasses not only the supporting systems, but also 

the planning, management, organizational structures, and processes 

related to all DOD’s major business areas. Such areas include 

support infrastructure management, human capital management, 

financial management, weapon systems acquisition, contract 

management, planning and budgeting, and supply chain 

management. Recognizing that DOD is continuing to evolve its 

efforts to plan and organize itself to achieve business 

transformation, critical to the success of these efforts will be 

management attention and structures that focus on transformation 

from a broad perspective and a clear strategic and integrated plan 

 32 S.780, 109th Cong., 1st Sess. introduced in the U.S. Senate on April 15, 2005, would create

a statutory Chief Management Officer. 

Page 27 
that, at a summary level, addresses all of the department’s major 

business areas. This strategic plan should contain results-oriented 

performance measures that link institutional, unit, and individual 

goals, measures and expectations, and would be instrumental in 

establishing investment priorities and guiding the department’s 

resource decisions. 

Finally, the lynchpin to ensure successful business transformation is 

the presence of strong and sustained executive leadership with 

appropriate responsibility, authority, and accountability. The central 

authority we had envisioned to allow for strong and sustained 

executive leadership over DOD’s business management reform 

efforts is a full-time, executive-level II position for a CMO, who 

would serve as the Deputy Secretary of Defense for Management. 

This position would divide and institutionalize the functions of the 

Deputy Secretary of Defense by creating a separate Deputy 

Secretary of Defense for Management. As we envision it, the CMO 

would feature a term of office that spans administrations, which 

would serve to underscore the importance of taking a professional, 

nonpartisan, institutional, and sustainable approach to the overall 

business transformation effort. As I understand it, DOD’s position is 

that the Acting Deputy Secretary of Defense, who also serves as the 

chair of the DBSMC, has the requisite position, authority, and 

purview to perform the functions of a CMO. Under the Acting 

Deputy’s leadership, DOD expects to be able to demonstrate 

progress towards achieving business reform. Comptroller General 

Walker continues to believe a CMO is necessary to provide the 

sustained leadership needed to achieve true business 

transformation. In light of DOD’s position, we would encourage the 

Subcommittee to require DOD to periodically report on its efforts, 

including describing the specific goals and measures against which 

it is measuring its progress in achieving business reform. 

- - - - - 

In closing, the department as made important progress in the last 6 

months in establishing the kind of business systems modernization 

management capabilities that our research and evaluations show are 

essential to a successful modernization program—namely, an 

architecture, a transition plan, and system investment decisionPage 28 
making structures and processes. But more needs to be done to 

complete each of these areas, and most importantly, to ensure that 

they are reflected in how each and every business system 

investment is managed. While the new business transformation 

agency can help get this done, much remains to be accomplished 

before this agency is functioning as intended. Beyond systems 

modernization, overall business transformation remains a major 

challenge. The creation of a CMO position, and the development of a 

strategic transformation plan to integrate and guide the 

department’s people, process, and technology change initiatives, 

would go a long way in helping the department meet this challenge. 

Mr. Chairman and Members of the Subcommittee, this concludes my 

prepared statement. I would be happy to answer any questions you 

may have at this time.

350777 Page 29 
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